Mortgage insurance is a type of insurance plan that is designed to protect you against the risk of defaulting and foreclosure against your home. Purchasing a mortgage insurance plan can help you sign a mortgage when you otherwise would not be able to afford it, and may also give you access to better interest rates, depending on your credit and the value of your home. However, there are several different types of mortgage insurance available on the market, each of which operates slightly differently from each other. Understanding the differences between the available mortgages insurance plans can help you choose the best one for your financial needs.
Single Premium Mortgage Insurance
Single premium mortgage insurance is actually fairly straightforward. There is only a single premium that you will have to pay to finalize your insurance policy, but it must be paid all at once upfront before you sign your mortgage. Because of this, you will avoid all interest payments, and there no hidden fees or increases in the amount of money that you have to pay. This means that you will likely save a little money compared to other policies, but will pay all at once, which means that this type of policy isn't ideal for homeowners with a tight budget.
Lender Paid Mortgage Insurance
Lender paid mortgage insurance is a type of mortgage insurance that is a part of your mortgage agreement itself, and is an added on monthly charge to your mortgage payments. This means that you will have a locked in monthly payment for mortgage insurance, which will end up costing more than single premium plans. However, lender paid mortgage insurance plans are almost always a mandatory part of your mortgage, which means that you wouldn't be able to access your mortgage at the rate that the bank has given you without it.
Borrower Paid Mortgage Insurance
Borrower paid mortgage insurance is an optional type of mortgage insurance, that isn't rolled into your mortgage payments but is still billed monthly. This type of mortgage insurance gives you a little more flexibility, and can be cancelled if certain terms that were outlined when you first signed the agreement are met. This means that borrower paid mortgage insurance allows you to access mortgages with better rates than you would otherwise would be able to, but that you can end the monthly payments after a certain period of time or a certain amount of payments has been met.